Alignment Healthcare (ALHC) Q3 2025: Membership Jumps 26% as Stars Ratings and Margin Execution Outpace Industry
Alignment Healthcare’s third quarter results showcase a business model scaling rapidly and profitably despite sector-wide reimbursement pressure. Strategic investment in care management, automation, and replicable clinical quality is translating into outsized membership growth, margin gains, and industry-leading Stars ratings. With ongoing industry disruption, Alignment is positioned to take incremental share and sustain double-digit growth, even as peers retrench.
Summary
- Replicable Model Drives Outperformance: Alignment’s care management platform and disciplined clinical execution continue to scale across new geographies and populations.
- Margin Expansion Amid Industry Headwinds: Margin improvement is powered by operational leverage and investment in automation, not one-off cost saves.
- Share Gain Opportunity Accelerates: Industry disruption is creating incremental share capture opportunities for 2026 and beyond.
Performance Analysis
Alignment Healthcare delivered a third consecutive quarter of exceeding the high end of guidance across membership, revenue, adjusted gross profit, and EBITDA, highlighting the company’s ability to both grow and manage risk in a challenging Medicare Advantage (MA) landscape. Health plan membership surged 26% year-over-year, supporting a 44% revenue increase and a 58% jump in adjusted gross profit. The medical benefit ratio (MBR, a measure of claims costs as a share of premiums) improved by 120 basis points to 87.2%, reflecting strong utilization management and clinical program execution.
Operating leverage was evident in the adjusted SG&A ratio, which declined 120 basis points to 9.6% of revenue, despite ongoing investments in automation and clinical infrastructure. Adjusted EBITDA margin expanded by 240 basis points, with sequential cash flow benefiting from timing of medical expense payments—though management emphasized this was a temporary effect, not a structural change. Stars ratings performance was a standout, with 100% of members in plans rated four stars or higher for 2026, compared to a national average of 63%.
- Membership Growth Surges: 229,600 health plan members, up 26% YoY, fueled by both new sales and high retention.
- Margin Structure Strengthens: MBR improved 120 basis points, with inpatient admissions per thousand in the low 140s, reflecting effective care management.
- SG&A Leverage Materializes: Adjusted SG&A ratio dropped to 9.6%, as investments in automation and clinical operations scale efficiently.
Alignment’s performance demonstrates that its integrated care management and technology platform can drive both growth and profitability, even as industry peers struggle with reimbursement and regulatory headwinds.
Executive Commentary
"Our unique model has positioned us to succeed amidst a paradigm shift in the industry marked by lower reimbursement and higher STARS standards. We continue to make investments that will improve operations to back office automation, clinical engagement, AVA-AI clinical stratification, and STARS durability. These investments will further separate us from our competitors."
John Kao, Founder and CEO
"Outperformance of both adjusted gross profit and MBR was driven by a continuation of disciplined execution of our clinical activities. Our Part D experience through the first nine months of the year gives us confidence that all of the moving parts related to the IRA changes have been appropriately captured and that we are on pace to meet the Part D margin assumptions embedded within our guidance."
Jim Head, Chief Financial Officer
Strategic Positioning
1. Stars Ratings as a Competitive Moat
Alignment’s ability to consistently achieve four-star or higher ratings for all members, including two five-star contracts outside California, provides a structural funding advantage and validates the replicability of its care model. Stars ratings, CMS’s quality incentive system, directly impact plan reimbursement and bonus payments, creating a durable competitive edge as rivals struggle to maintain ratings under tougher standards.
2. Operational Leverage and Technology Investment
Ongoing investment in AVA-AI, Alignment’s proprietary clinical stratification and automation platform, is driving both improved clinical outcomes and SG&A leverage. Back office automation and proactive care management are reducing per-member costs and enabling scalable growth, with management signaling further margin upside as these investments mature in 2026 and 2027.
3. Balanced Growth and Risk Management
Management’s measured approach to membership growth, with a focus on high-quality provider networks and product mix, is designed to avoid the pitfalls of low-margin or high-risk new business. The company’s history of onboarding and managing large new member cohorts with strong clinical results is central to its confidence in sustaining at least 20% growth in 2026 even as the overall MA market is expected to be flat or declining.
4. Geographic and Product Diversification
Strong performance in non-California markets, including five-star contracts in North Carolina and Nevada, demonstrates the portability of Alignment’s model. Management signaled intent to expand systematically into new markets, funded by operating cash flow, with a playbook approach to scaling shared services and clinical programs.
5. Disciplined Capital Allocation and M&A
Alignment is exploring tuck-in acquisitions in supplemental benefits and ancillary “captive” businesses, such as dental or behavioral health, to drive incremental margin from existing membership. Management is avoiding high-risk market entries or book acquisitions, focusing instead on opportunities with low execution risk and immediate scale benefits.
Key Considerations
Alignment’s third quarter underscores a model built for both scale and resilience, with strategic investments and disciplined execution supporting growth well above industry averages.
Key Considerations:
- Stars Ratings Durability: 100% of members in four-star or higher plans positions Alignment for superior funding and competitive differentiation through 2027.
- SG&A Efficiency Gains: Automation and clinical platform investments are driving structural cost improvement, not just one-time savings.
- Share Gain Potential: Industry disruption and competitor retrenchment in MA are opening incremental opportunities for Alignment to capture share in both core and new markets.
- Prudent Growth Discipline: Management is balancing rapid expansion with rigorous risk management, focusing on provider quality and product mix to avoid adverse selection.
- Supplemental Benefits Strategy: Potential entry into captive ancillary businesses could meaningfully enhance margin with minimal execution risk.
Risks
Key risks include ongoing regulatory volatility in Medicare Advantage, particularly around risk adjustment, Stars cut point changes, and the final phase of V28 reimbursement methodology. Industry-wide utilization spikes, especially during flu season, could pressure margins in Q4. Competitive intensity remains high, though Alignment’s replicable model and focus on quality mitigate some of these pressures. Management’s cautious outlook on policy changes and prudent approach to growth help limit exposure, but regulatory and market shifts remain material uncertainties.
Forward Outlook
For Q4 2025, Alignment guided to:
- Health plan membership: 232,500 to 234,500
- Revenue: $995 million to $1.01 billion
- Adjusted gross profit: $104 million to $113 million
- Adjusted EBITDA: negative $9 million to negative $1 million (reflecting seasonality and Q4 utilization)
For full-year 2025, management raised guidance:
- Revenue: $3.93 billion to $3.95 billion
- Adjusted gross profit: $474 million to $483 million
- Adjusted EBITDA: $90 million to $98 million
Management highlighted:
- Persistent SG&A discipline and ongoing investment in automation and clinical programs as drivers of future margin expansion.
- Confidence in at least 20% membership growth in 2026, supported by early AEP results and market share capture opportunities.
Takeaways
Alignment Healthcare is executing a playbook of scalable care management, automation, and disciplined growth that is delivering both outsized membership gains and margin improvement in a turbulent industry.
- Stars Ratings Outperformance: Industry-leading quality scores are translating into funding advantages and competitive separation.
- Operational Leverage and Cash Flow: Investments in technology and automation are yielding structural cost improvement and supporting further expansion.
- Share Gain and Expansion Potential: Industry disruption is creating a window for Alignment to accelerate share capture while maintaining risk discipline and replicability across new markets.
Conclusion
Alignment’s third quarter performance and raised outlook reflect a business model that is both scalable and resilient, with replicable operational strengths and a clear path to continued share gains. Investors should watch for continued margin expansion, Stars durability, and disciplined market entry as key levers for future outperformance.
Industry Read-Through
Alignment’s results highlight the growing divergence between MA plans that can deliver replicable quality and cost management, and those struggling with reimbursement and regulatory headwinds. The ability to drive Stars ratings and operational leverage is becoming a prerequisite for growth and margin in the sector, with technology and clinical platform investments now table stakes for competitive positioning. Industry participants should expect further consolidation and retrenchment among weaker plans, while those with scalable, high-touch care models are poised to capture incremental share as the market shifts toward quality-driven reimbursement and tighter regulatory oversight.